Dear Momentum Options Subscriber,
The bears extended their Monday winning streak this week and have now won six of the past nine Monday’s on the Dow following yesterday’s market losses. Although the talking heads have been mentioning volatility, they still don’t know how to trade it. It was another frustrating session for the suits-and-ties that were trying to go long, but we continue to open new “short” positions to prepare for what could be coming.
The Dow dropped 91 points, or 0.5%, to close at 17,598. The blue-chips traded to a high of 17,704 on the open but folded like a cheap lawn chair during the remainder of the session. The bears pushed a low of 17,496, with support at 17,400-17,350 waiting in the wings. Resistance remains at 17,700-17,800, but the close below 17,600 looked like a bearish signal that further weakness could be in store.
The S&P 500 slipped roughly 6 points, or 0.3%, to settle 2,098. The index was choppy throughout the session after reaching a peak of 2,105 on the open. Resistance at 2,115-2,125 easily held, with a test to 2,087 ensuing afterwards. Support at 2,100 and the 50-day moving average failed to hold. The 100-day moving average held by a point. A close below 2,090 could lead to a retest of 2,075-2,070 and the 200-day moving average.
The Nasdaq gave back 13 points, or 0.3%, to end at 5,115. Tech tested resistance at 5,150 following a run to 5,143, but the index faded in and out of negative territory during the first half of the action. The low of 5,082 held near-term support at 5,100-5,075 and the 50-moving average. There is additional risk to 5,050-5,025 and the 100-moving average on a drop below 5,075-5,070.
The Russell 2000 fell nearly 7 points, or 0.6%, to finish at 1,231. The small-caps nearly cracked 1,239 at the start of trading but failed at clearing resistance at 1,240. The index traded down to 1,224 late in the session but held near-term support at 1,230-1,225. A close below 1,225-1,215 and the 200-moving average could lead to 1,200.
The S&P 500 Volatility Index ($VIX, 12.56, up 0.44) tested a high of 13.55 during the second half of trading and stayed elevated throughout the session. The close above 12.50 keeps 13.50-15 in play. A drop back below 12.50-11.50 would be a slightly bullish sign, and the latter will need to hold to confirm that new highs are coming.
Of course, the big news yesterday was Apple’s (AAPL, $118.44, down $2.86) close below $120 and its 200-day moving average.
Shares kissed a low of $117.52, and some traders are saying that they would like to get in at these levels. However, they may hesitate once they see that this was the stock’s first close below its 200-day moving average since September of 2013. I will have more on this developing story, but shares could be setting up for a drop to $115-$110 if $120 isn’t recovered quickly.
From desk to press, futures look like this: Dow (-32); S&P 500 (-4.5); Nasdaq 100 (-13); Russell (-2).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 76-25-2 (74%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 8:00 a.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the portfolio.
SPDR S&P 500 ETF (SPY, $209.73, down $0.77)
SPY August 205 puts (SPY150821P00205000, $0.80, up $0.07)
Entry Price: $0.90 (8/3/2015)
Exit Target: $1.35-$1.80 (Limit Orders on half)
Stop Target: None
Action: Set Limit Orders to sell to close the first half of the trade at $1.35 and the second half at $1.80.
These options expire in less than three weeks, and I would like to be out of at least half of the trade this week.
I wanted to go “short” using these put options on the S&P 500’s drop below 2,090 and following the other bearish clues that developed yesterday. The options tested a high of $1.13 on SPY’s dip to $208.65. Volume was huge, as nearly 49,000 contracts traded.
I would like to see $210 hold on today’s open, and a drop below $208 should lead to some panic selling on Wall Street. A move above $212-$213 will likely force us out of the trade.
PowerShares QQQ Trust (QQQ, $111.60, down $0.35)
QQQ August 110 puts (QQQ150821P00110000, $0.74, up $0.04)
Entry Price: $0.72 (7/30/2015)
Exit Target: $1.45
Stop Target: None
Action: Support is at $110. Near-term resistance is at $112. A move above $113-$114 will likely force us out of the trade.
SPDR Gold Trust ETF (GLD, $104.10, down $0.83)
GLD September 98 puts (GLD150918P00098000, $0.70, up $0.08)
Entry Price: $0.82 (7/28/2015)
Exit Target: $1.65
Stop Target: None
Action: A move below $104-$103.50 should get $100 and below in play. The major moving averages are still sloping lower and show no signs of leveling out. Resistance is at $106.
United Parcel Service (UPS, $102.75, up $0.39)
UPS October 110 calls (UPS151018C00110000, $0.44, up $0.04)
Entry Price: $0.70 (6/11/2015)
Exit Target: $0.70+
Stop Target: $0.20 (Stop Limit)
Action: Shares traded to a high of $103.15 following the dip to $101.90 on yesterday’s open.
Resistance is at $103-$105. A move above the latter should get the trade back to even or better. Support has moved up to $102-$101 and the 200-day moving average. There is additional help at $100-$99 and the 50-day moving average.
Trades on Hold — other 2015 Portfolio Open positions (1): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Continue to hold.
Editor and Chief Options Strategist